The banking industry has vowed there won’t be a sudden wave of foreclosures from next month, once the emergency scheme that allowed struggling customers to freeze their loan repayments ends.
The Australian Banking Association will on Thursday say 91 per cent loans that were deferred last year in response to COVID-19 had now resumed repayments, ahead of the scheme wrapping up next month.
In line with trends reported by major banks this month, the ABA said only 13 per cent of housing loans and 5 per cent of business loans on deferral were yet to resume repayments.
ABA chief executive Anna Bligh said people who could not resume repayments would move into the next phase of support, which would involve hardship arrangements designed for individual customers’ needs.
Banks allowed hundreds of thousands of customers to pause their mortgage repayments at the height of the pandemic last year, providing an important buffer for the economy. Even though the vast majority of these customers are resuming their repayments, lenders are still anticipating a higher-than-usual number of customers will fall into hardship, which can ultimately lead to foreclosure.
Ms Bligh said banks’ hardship responses could include giving borrowers more time with further deferrals, or waiving of credit card debts in exceptional and compassionate cases. She said that banks worked with customers for several months before more formal processes were started.
“I think there’s this looming sense that on the 31st of March, if you’ve had a deferral and it’s expired, you’re going to fall off a cliff. It’s just not how it happens, there are several months of working with a customer,” she said.
“No one is going to wake up on the 1st of April to have their house foreclosed on.”
Banks have also launched an online financial assistance hub advising customers of their options, and the processes banks follow in dealing with customers struggling with repayments.
Ms Bligh said that previously, how banks dealt with customers in hardship had been a “a bit of a black box,” and COVID had prompted the industry to be more open with customers.
“It would be fair to say it’s been a pretty opaque process and we’ve never gone through the exercise of aligning it across the industry so that no matter who you bank with, you’re going to get dealt with in a very similar way,” Ms Bligh said.
“It’s about being very candid with customers on both the upside and the downside.”
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